Microsoft’s hardware team had a huge holiday season and its cloud division continues to grow rapidly, but the company’s stock is dropping after reporting a mixed bag of financial results for the quarter.
- Revenue: Microsoft reported $32.47 billion in revenue for its second fiscal quarter, a figure that is up 12 percent over the prior year and is just shy of the $32.5 billion analysts expected.
- Profits: Net income of $8.6 billion — or $1.10 per share, which is up 9 percent over a year ago — came slightly above analyst expectations of profits of $1.09 per share
“Our strong commercial cloud results reflect our deep and growing partnerships with leading companies in every industry including retail, financial services, and healthcare,” Microsoft CEO Satya Nadella said in a statement. “We are delivering differentiated value across the cloud and edge as we work to earn customer trust every day.”
Microsoft stock is down about 2.7 percent in after-hours trading Wednesday. The primary factor in the revenue miss was a 5 percent drop in Windows OEM revenue, the money Microsoft brings in from selling Windows to computer makers.
Microsoft splits the company into three main areas in its earnings reports. Here’s how each one did in the quarter ending in December:
- In the company’s Productivity and Business Processes division, which includes Office 365 and LinkedIn, revenue increased 13 percent over last year to $10.1 billion.
- Intelligent Cloud revenue was up 20 percent to $9.4 billion, powered by 76 percent annual revenue growth from Azure.
- Revenue in the company’s More Personal Computing division, which includes its Windows PC business, Surface products and gaming teams jumped 7 percent over last year to $13 billion.
Several parts of the business hit revenue milestones in the quarter.
Surface: Revenue from Microsoft’s Surface division, responsible for much of its hardware offerings, was flat for the last few holiday seasons. That certainly changed this time around as Microsoft reported a whopping 39 percent growth in Surface revenue over last year to $1.86 billion.
Microsoft unveiled versions of the most popular Surface tablets and computers as well as the surprising new Surface Headphones at an event in October. Reveal events in the fall, ahead of the holiday shopping season have become a trend among most big companies, and it appears to have paid off for Microsoft this time around.
Gaming: The division that includes everything from Xbox hardware to Xbox Live subscriptions to revenue from games made by Microsoft as well as other studios, hit $4 billion in quarterly revenue for the first time, following annual growth of 8 percent.
The number of Xbox Live users jumped from 57 million a year ago to 64 million in the most recent quarter, one of the biggest increases in years. Xbox hardware revenue declined 19 percent from last year, when the Xbox One X was released, while Xbox software and services revenue increased 31 percent.
LinkedIn: Revenue from the business social network grew 29 percent over last year. Microsoft last quarter stopped reporting LinkedIn revenue and profits/losses as it continued to fold the business social network into its organization more than two years after completing the $26 billion acquisition.
A year ago, LinkedIn brought in $1.31 billion in revenue. A 29 percent increase year-over-year increase would bring revenue in the most recent quarter to just shy of $1.7 billion.
Highlights from the quarter
- Microsoft claimed the title of the most-valuable U.S. company in November — beating out Apple — and it has been volleying the honor back and forth with Amazon in recent weeks.
- Microsoft secured a huge win for the Surface division with a deal in December to supply the Law School Admission Council with thousands of Surface Go devices to use for the Law School Admissions Test (LSAT).
- In November, Microsoft won a $480 million contract to provide the U.S. Army with 100,000 HoloLens headsets, a major boon for the company’s “mixed reality” division.
- Microsoft’s cloud division continued to woo retailers weary of using Amazon Web Services while also competing with Amazon on the retail front, landing a deal with Gap and furthering its partnership with Walmart.